Greetings and welcome to electroCore First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Rich Cockrell. Thank you. You may begin.

Thank you all for participating in today’s electroCore’s earnings call. Joining me today are Dan Goldberger, Chief Executive Officer; Brian Posner, Chief Financial Officer; and Dr. Peter Staats, electroCore’s Chief Medical Officer. Earlier today, electroCore release results for the first quarter ended March 31, 2022. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during the call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends and our future financial expectations are based upon the company’s current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of risks and uncertainties associated with the company’s business, please see the company’s filings with the Securities and Exchange Commission. electroCore disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, May 5, 2022. And with that, I’ll turn the call over to Dan. Go ahead, Dan.

Thank you, Rich. Hello, everybody, and thanks for joining us on today’s call. Our U.S. business performance was solid in the first quarter ended March 31, 2022, more than making up for a slow start in our United Kingdom business. Revenue for the first quarter of 2022 hit a record $1.9 million, increasing approximately 58% over the first quarter of 2021 and approximately 27% sequentially. Gross margins expanded to 81% and net cash used in operations was about $4.8 million for the quarter ended March 31, 2022. Our U.S. cash pay commercial head channels are starting to accelerate, and we expect it to continue those initiatives through the rest of 2022. We currently have about 345 active prescribers in our gCDirect program that allows a prescriber to send a prescription directly to our home office for processing by our customer experience team. We work directly with the patient to dispense therapy and collect payment. We have an additional 52 prescribers in our gConcierge program, a physician dispensed model where the prescriber purchases inventory from electroCore at a transfer price, and provides therapy directly to their patient from their own inventory. E-commerce channels we established in January 2022 are off to a good start. Consumers can go to our website to allow a questionnaire that is adjudicated by a telehealth process obtain a prescription and then move therapy into a shopping cart to obtain a gammaCore Sapphire for their own personal use. Our customer experience team is available to patients in all of these channels providing training and support for new prescriptions and following up with patients to ensure they are staying in compliance with their therapeutic protocol. We plan to continue investing in our digital awareness campaigns initially through paid search and social media in an effort to drive headache…

Thank you, Dan For the first quarter ended March 31, 2022, electroCore reported net sales of $1.9 million as compared to $1.2 million during the same period of 2021. This represents a 58% revenue increase over the same period last year. Gross profit for the first quarter of 2022 was $1.5 million as compared to $840,000 for the first quarter of 2021. Gross margin was 81% and 70% for the periods ended March 31, 2022 and 2021 respectively. Our evolving commercial strategy has resulted in a launch of cash payment models under which we license certain starter devices. The cost of the licensed starter device is being recognized as cost of goods sold over the estimated useful life of the starter device versus expensing the cost of goods at the time of sale. Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price. These factors, along with favorable absorption of labor and overhead costs, contributed to the increase in gross margin. Total operating expenses in the first quarter of 2022 were approximately $7.1 million an increase from approximately $896,000 from $6.2 million in the first quarter of 2021. Research and development expense in the first quarter of 2022 was $934,000 as compared to $499,000 for the same period in 2021. R&D expense for the quarter includes investments for our next-generation product currently under development. Selling, general and administrative expense in the first quarter of 2022 was $6.2 million as compared to $5.7 million for the same period in 2021. Total SG&A expenses for the first quarter of 2022 included increased investment in our sales and marketing efforts to support our cash pay initiatives. GAAP net loss for the first quarter of 2022 was $5.6 million as compared to a…

Thank you, Brian. I’m very excited about our operating results this quarter, and we continue to be in a strong financial position. Longer term, indications beyond primary headache supported by the ongoing clinical developments discussed earlier, could greatly expand the nVNS therapy market. The Teijin license we announced in April brings in some nondilutive cash and is a huge validation of the commercial appeal of nVNS therapy around the world. The BOOST project being financed by the Air Force and the Defense Advanced Research Project Agency, DARPA, could accelerate the adoption of nVNS for a variety of new indications among our active duty military. We continue to build our intellectual property portfolio, and we are developing a very exciting next-generation product platform to leverage it. Our VA DoD channel continues to grow with the pandemic recedes and our direct-to-consumer initiatives are showing results in our commercial channels. While our UK business was negatively impacted during the first quarter of 2022, we look forward to a return to growth as the pandemic recedes. I see many potential growth drivers through 2022 and 2023, including continued penetration of our VA DoD channel in the United States, continued penetration of the United Kingdom market as the pandemic recedes, growth in our U.S. commercial channel driven by cash pay business models and direct-to-consumer advertising, while we continue our efforts to gain commercial insurance coverage, and fourth, expansion of our international business through our distributor network and added traction within the UK e-commerce store. Longer term, there are real opportunities for label extensions into PTSD, opioid use disorder and mild traumatic brain injury. The Air Force BOOST program could lead to incremental product sales to the active duty military as soon as next year. Lastly, we’re exploring growth opportunities to enhance and leverage distribution channels through acquisitions. We are focused on revenue stage targets that might enhance top line growth and offer other synergies. At this time, I will turn the call over to the operator. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Swayampakula with H.C. Wainwright. Please proceed with your question.

Thank you. This is RK from H.C. Wainwright. Good afternoon, Don.

Hi, there. How are you?

Good, good. Certainly, an exciting quarter in terms of sales growth and also obviously some interesting programs that you are trying to embark on. Regarding the BOOST program, I am sure it’s a very exciting opportunity as you work with the Air Force and then trying to assimilate to your technology for their needs? In terms of the development cycle itself, how should we think about this both in terms of – it is – is it electrical that’s going to spend initially and then build them for the expenses or is it them funding you even before you start your initial work on the project? And then a second part of that question is once you develop the device such that Air Force could use it, do they require any additional regulatory approval to ensure that they can prescribe it for military personnel?

Let me try and unpack the questions, RK. Just by coincidence, I’m speaking to you from Fort Hurlburt in Florida, where we’re having a kickoff meeting with the BOOST program. So I’m...

Okay. If you need to go into the secret room, please go ahead.

Right, so we’re getting our arms around it all. So the Air Force has been doing quite a bit of work quietly behind the scenes. They have done a few publications about the use of nerve simulators in general and the gammaCore non-invasive vagus nerve stimulator in particular. The first place that they want to deploy this technology is in what they call ISR, which is their intelligence, surveillance and – so these are analysts who work in not an office environment, but in a light industrial environment where they are looking at a lot of monitors and they have 8-hour to 10 or 12-hour shifts. The next cohort after the ISRs are the remote pilots, the drone operators. And so again, the initial deployment is going to be in relatively benign physical environments, but they are looking forward over the long haul to deploy it to the special tactics community and ground tactical operators. So, talking beyond the Air Force to the Army and Special Forces Command about deploying this therapy pretty broadly. As far as how does the money flow, the Air Force has been buying devices in very small quantities from us. And there are two pieces to this program. They are going to be buying a few more of our commercial devices to continue their validation. And they are going to be fully funding the development of a hardened, more robust version of our device that would ultimately be deployed first in that analyst and remote pilot environment and then hopefully longer term into boots on the ground opportunities. So, the cash impact on electroCore is small. We’re going to be providing our staff and our know-how. But the vast majority of the development work for the Air Force implementation is fully funding. As far as regulatory process, we may or may not file a special 510(k) that will be up to the Air Force. We’re not going to be looking for any additional indications beyond what we are FDA cleared for today. There will probably be a variety of mil spec testing as far as mechanical ruggedness electrical interference, those kinds of things that are common certification requirements for deploying to active duty military. So hopefully, I answered the question, but we’re very excited about the program. I think deploying revenue units towards the end of 2023 is achievable, but it may take a little bit longer than that.

No, this is certainly an exciting opportunity, right? Also, when you’re said and done with this new version of gammaCore, how freely can you take that even if it is as a protocol – of a prototype, and work with other military groups, call it, say, like either IDF in Israel or are the Royal Air Force in UK. Could you do that or you have certain documentation with the U.S. Air Force that you could not take this elsewhere?

So in principle, it’s going to be exclusive to the U.S. armed forces, but presumably with the government’s permission, we could take it more internationally.

Okay, great. And then just trying to understand the commercial business, especially in the commercial pay business, how is that working out? Because I know as a management team, you are pretty excited about going that drought. Where do you think that process is at this point? And what should we expect from that segment going forward?

So we’ve been building out our physician dispense model that we call gCDirect and gConcierge slowly but surely. And earlier, we talked about some of the numbers of prescribing physicians and that’s starting to accelerate. In January, we launched our e-commerce initiative, and we’ve been ramping up our spending on search, paid search and social media. The e-commerce was relatively small revenue, but all indications are that it’s going to scale with our media spending as we go through the year and our physician dispense models also get a lift from the direct-to-consumer awareness spending that we’re going to do. So I think we’re trying to be thoughtful and methodical about the timing of ramping up our consumer spending, and make sure that we have channels that as we spend more on advertising that consumers have a place to go to acquire the therapy, either through our e-commerce platform or from our physician dispense partners. So it’s off to a great start, and now we got to prove that we have – we’re tracking a parameter that we call media efficiency ratio. In other words, how much do we have to spend on advertising to generate $1 of revenue. And I’m looking forward to increasing that investment and getting the associated increase in revenue.

Alright. Thank you. And then last question from me is on the Teijin License agreement. What should we expect from there? Is it – is this going to turn into commercial revenues anytime soon or you need to go through the Japanese regulatory agency, which obviously could take a little bit of time? But I’m just trying to understand when that could start flowing through?

Yes, that’s an interesting challenge. As you know, the Japanese Ministry of Health is no more expeditious than the FDA. A key determination is going to be later this year as Teijin takes the legacy pivotal data that we use for U.S. and European clearances to the Japanese Ministry of Health. And ideally, they will be able to use the existing pivotal data, but it’s entirely possible that the Japanese regulators will say that they needed a small in-country cohort of pivotal data, in which case the timeline will be extended to go execute that trial. So I’m going to dodge that question until we know a little bit more.

Absolutely fine. Thank you very much for taking all my questions. Talk to you soon.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, Dan, Brian and Peter. How are you?

Good. Thanks. How are you, so?

Very good.

Just fine. So I guess, firstly, do you have any commentary on this transitional coverage for emerging technologies, the CMS 34 and 21 and if that ever goes through? I know it’s just been proposed as kind of MSL replacement, any effect upon the company of material nature?

So not this year. We really have not petitioned for Medicare coverage at this point and have not negotiated with any of the MAC yet. So it’s – we don’t have any reimbursed. We don’t have any CMS reimbursed channels at this point in time. So as to the reimbursement process in the future, I’m not really sure yet.

Okay. I think I heard you say was it 5,200 on the gConcierge program?

No. I think we have 52 prescribers that are signed up at this point.

Got it. Okay. And those are all HCPs?

Yes, absolutely. Yes.

And any color on the direct channel to patients directly?

We’re not breaking out that detail just yet. You’re asking about the e-commerce channel?

Yes, or the gCDirect.

Right. The only detail we’ve given are the number of prescribers. So, roughly 345 gCDirect prescribers in a smaller number of gConcierge prescribers.

Okay. Got it. And then from the standpoint of the VA channels, right, you were think at about 100 in a year, 105 now. Can you give us a sense of a number of new centers that we should expect to come on board during ‘22? More importantly, some of the trends you’re seeing in existing facilities as far as number of patients as well as any utilization trends?

Yes, so we’ve focused – in the short run, we’re focusing more on going deeper into our existing accounts. So you’re going to see that total number increase, but as we spend more money on direct-to-consumer awareness that also allows us in the VA hospitals to go to other departments. By that, I mean traditionally, we’ve been going to a headache specialist and neurologists, but as we drive consumer awareness, we can go to women’s health, we can go to pain management, we can go to psychiatry. All these more primary care departments within the facility that are seeing headache patients and maybe getting a little bit of demand growth from our direct-to-consumer advertising. So we are seeing – we’re pretty excited about the return we’re getting on those efforts of going to our existing customers and opening up additional call points within the hospital campus.

Okay, got it. And one more if I may. I know that you’ve got a lot of readouts coming both pivotal and pilot studies in the coming quarters, but any commentary specifically on migraine and the separation of migraine via your cluster headache indications in that market?

So there have been publications now that nVNS therapy should be considered first-line therapy in cluster headache. And we’re able to make quite a bit of traction with headache specialists that do see that subset of cluster headache patients. And we’re going to continue to drive that clinical differentiator. Migraine is far more challenging both because of the heterogenity of migraine, right? It’s right – it’s a large cohort, but there are different phenotypes and as well as our direct-to-consumer promotions are bringing forward patients who would not have heard about the therapy from their primary care physicians. So nothing definitive yet, but we do believe that all these channels are going to get a lift from the direct-to-consumer awareness that we’re doing.

Okay. Perfect. That’s enough and thanks for taking the questions.

Absolutely.

Our next question comes from John Vandermosten with Zacks. Please proceed with your question.

Good evening, everyone. I’ve got some additional questions on Teijin – Hi, Dan, how are you? One at the time – I think you mentioned there are some other territories that they might develop for you. What are those? Is that another age, I assume? Is there any specific countries that are identified?

I’m sorry I didn’t catch the beginning of the question. Teijin, you mean?

Yes, Teijin, right. So I think you had mentioned that there are some other territories...

Yes, in our negotiations with Teijin, look, they are a pretty established international company. They have a substantial footprint in the U.S. and in Europe. More specifically, they are interested in the Pacific Rim and China but the real business opportunity in the short run is around Japan. And internally, if they can get comfortable about the effectiveness of our therapy in the business model for our therapy in Japan, they are probably going to want to do something much more substantial with this.

Okay. So it sounds like there is some opportunities to deepen the relationship there.

Absolutely.

Okay. And on the BOOST program, is there any more clinical work that needs to be done? It sounds like that, that has already been completed. And the only thing that the Air Force needs to see from you is just the higher spec, more durable, perhaps or you said the electronic interference issues regarding the device. Is that all that needs to get done? Or is there any more clinical work?

So the researchers that have really championed the project want to take it to other cohorts of Air Force personnel and personnel beyond the Air Force and continue to demonstrate the various benefits of the therapy in sort of other cohorts of end users. So I’m not sure that rises to the level of clinical work, but it’s – part of it is demonstrating the effectiveness of the therapy in different groups and therefore, opening up additional groups to purchase.

I see. And does it – does the Air Force need FDA clearance to use it for another indication?

So they are primarily using it for mood and anxiety and then the peripheral benefits of increased attention span and energy levels where they are looking at things like caffeine consumption and reducing caffeine consumption. They are looking at it as an alternative to, unfortunately, our soldiers self-medicating with alcohol. So these are not FDA indications per se. These are more wellness indications.

Okay. And then last one, Brian, this one is for you. On gross margins, those have continued to be better than our estimate. How should we think about the different channels and the associated margins or is that not the driver? Because I’m thinking some are growing faster than others. Should we use some of those growth rates to help modify our margins going forward or are there other factors to think about?

Well we’ve been in the mid-70s or better for the past couple of quarters. We’ve been 80 or better for the past two quarters. And so I think the margin should be mid-70s to low 80s depending on the mix. Obviously, the VA is the biggest part of our business right now. But like Dan said, we’re optimistic on some of the other channels will contribute in an increasing fashion too. So I think right now, again, we’ve been mid-70s to low 80s since the middle of last year. And I think there is no reason to maybe change your model significantly at this point.

Okay. And are there materially different gross margins between the different channels or there is other material...

There is differences between the channels and sometimes there is differences within the channels as well, depending on the product mix within the particular channel.

And if I could interrupt. It’s also – I think, Brian, what you said earlier is duration of therapy, which is another way of saying refill prescriptions because our fundamental model is the longer you use the device, the better your clinical results are going to be, and we basically we generally get paid on a recurring revenue model.

Got it. Is that – so which channel has the most...

All of them, all of them.

Okay, so there is no material difference seen the number of refills that people get, depending on channel.

Not yet, but we are...

It is just minor. Okay. Great. Thank you for taking my questions.

Thank you.

[Operator Instructions] Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

Hi, Dan. This is actually Jeremy on the line for Anthony. A couple of quick follow-up questions. So I know you mentioned you said there were 345 active prescribers and 52 for gCDirect and gConcierge. Is that through the end of the first quarter? Or is that to date?

That was at March 31st.

That was at March, okay. And then could you maybe give us any more information what you’ve seen in the first month in second quarter? Has that pace increased? Or is it really go in tandem to your marketing spend?

So April was solid, but there is more and more excitement about signing up to work with us. And I think that’s not directly driven, but is in part driven by the direct-to-consumer awareness that we’re spending money on. So we’re – we continue to feel like it’s accelerating nicely.

And that you mean you’re referring to signing up physicians to be part of this program?

Correct.

Okay, that’s great. And then just – I know you mentioned also one of the prior questions that right now, your short-term focus is to drive deeper into current accounts. But just let’s say looking a little bit past that, I don’t know if at the end of this year or maybe next year 2023. What are some initiatives you have planned or that you’re throwing around that will help to bring in more facilities and expand not just extend and broaden your reach supposed to just driving deeper into the accounts? Any initiatives you could share?

So the VA hospital channel is driven by our field sales force to a great degree, supported by our customer experience in New Jersey. And so we’ve been selectively adding direct employees to our field sales function, but the bigger cohort is coming from independent distributors that have a call point in the VA hospitals. And so that cohort of – and so these are folks who are working for straight commission. And we always like that because while it’s a little bit more expensive on the SG&A line, it’s all variable expense, and they only get paid if we’re generating the revenue, and that leverages the manpower of our smaller direct employee force.

Okay. Understand. And then just last question. I don’t know, is there any update on the commercial coverage side or you are just still in negotiations that are just still proceeding at a slow pace?

Yes, we’ve got some bright spots, but they are not right yet, and I look forward to announcing that later in the year.

Okay, alright. That’s all for me. Thanks for taking my questions.

And Rob, we have time for one more question.

Our next question comes from John [indiscernible]. Please proceed with your question.

Yes. Hi, Dan. Trying to understand the PTSD, I know you’re going back in front of – to get approval FDA. Is there a different half – or do you have to wait for the FDA on that to sell PTSD into the VA channel?

Unfortunately, it’s a simple question, I’m going to give you a little bit of a complicated answer. PTSD is comorbid with headache in a very relatively high percentage. And so we can talk about headache in PTSD under our current labeling. The idea is to go back to the FDA and get a stand-alone label for PTSD. The nuance is that within the VA hospital system, PTSD is treated by psychiatry, headache is treated by neurology. They don’t always talk to each other, and that’s what we’re trying to bridge.

So there is nothing really holding it back on the VA, and then it’s just a matter of access to the different departments.

It’s more subtle than that, but that’s [indiscernible] it, sir.

Got it. Okay, thank you. That’s all.

We’ve reached the end of the question-and-answer session. I would like to turn the call back over to Dan Goldberger for closing comments.

Thank you, everybody. Greatly appreciate your time. It’s been a difficult day on Wall Street, I know that. I’d like to give a special thanks to all of our employees who work tirelessly to deliver our amazing therapy to patients. Their hard work and commitment are setting the stage for growth in 2022 and beyond. I also want to thank the healthcare professionals and their patients for their loyal support of gammaCore therapy. We have made tremendous progress and it couldn’t have been done without your unwavering support. Thank you, everybody, and have a better day.

This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.